The universally acceptable legal position is that once there is
an arbitration clause in an agreement, the same shall be referred
to arbitration. However, it seems that under the present law, as
interpreted by the various High courts and the Supreme Court of
India, a legal position which may be a bottleneck for resolution of
disputes by way of arbitral proceedings has been propounded. From
the discussion below, it will be clear that the nuances of language
have taken over precedence over the possible intent of the parties
to resolve their disputes by way of Arbitration, thereby damaging
the dynamism of The (Indian) Arbitration and Conciliation Act,
1996. The interpretations given by the Indian courts, whose
verdicts are equivalent to the law of land, to the words like
"MAY", "CAN" AND "SHALL HAVE THE
RIGHT", appear to be hyper-technical. In any case as already
mentioned above, the interpretations given by the various Indian
High Courts and the Supreme Court of India are, as of now, the law
of the land. These decisions also highlight the need to carefully
draft the arbitration clauses in the agreements, as at times use of
a loose word like "MAY", "CAN" AND "SHALL
HAVE THE RIGHT" may be fatal to the real intent of the parties
to the agreement. Howsoever, careful one may be, still one cannot
rule out the judicial scrutiny and interpretation of such words, at
a distant later stage of disputes.

In the cases titled K.K. Modi v. K.N.
Modi]1
; Bharat Bhushan Bansal v. U.P. Small Industries Corpn.
Ltd.2
; Bihar State Mineral Development Corpn. v. Encon Builders (I) (P)
Ltd.3
; and State of Orissa v. Damodar
Das4,
the Hon'ble Supreme Court of India had the occasion to refer to
the attributes or essential elements of an arbitration agreement
and held that a clause in a contract can be construed as an
"arbitration agreement" only if an agreement to refer
disputes or differences to arbitration is expressly or
impliedly spelt out from the clause. It was observed that
the intention of the parties to enter into an arbitration
agreement shall have to be gathered from the terms of the
agreement. It has been held that where there is merely a
possibility of the parties agreeing to arbitration in future, as
contrasted from an obligation to refer disputes to arbitration,
there is no valid and binding arbitration
agreement.

The following fundamental guidelines and principles relating to
a valid arbitration agreement have been laid down by the
Hon'ble Supreme Court in the case of Jagdish
Chander v. Ramesh Chander and
Ors5 along with
the reference of the cases mentioned above:

Where the clause provides that in the event of disputes arising
between the parties, the disputes shall be
referred to arbitration, it is an arbitration agreement.But where the clause relating to settlement of
disputes, contains words which specifically exclude any of the
attributes of an arbitration agreement or contains anything that
detracts from an arbitration agreement, it will not be an
arbitration agreement.

Mere use of the word 'arbitration' or
'arbitrator' in a clause will not make it an arbitration
agreement, if it requires or contemplates a further or fresh
consent of the parties for reference to
arbitration. For example, use of words
such as "partiescan, if they so
desire, refer their disputes to arbitration" or "in the
event of any dispute, the partiesmayalso agree to
refer the same to arbitration" or "if any disputes arise
between the parties, theyshall
considersettlement by
arbitration" in a clause relating to settlement of
disputes, indicate that the clause is not intended to
be an arbitration agreement.

Such clauses merely indicate a desire or hope to
have the disputes settled by arbitration, or a tentative
arrangement to explore arbitration as a mode of settlement if and
when a dispute arises. Such clauses require the parties to arrive
at a further agreement to go to arbitration, as and when the
disputes arise. Any agreement or clause in an
agreement requiring or contemplating a further consent or consensus
before a reference to arbitration is not an arbitration agreement,
but an agreement to enter into an arbitration agreement
in future.

Further, in some of the following recent judgments, the
Courts have examined as to whether the use of word'may'/'can'in the
arbitration clause/agreement can render the parties to arbitration,
the courts have relied upon the above cases and further enumerated
the position of Indian law in this regard to what constitutes an
arbitration agreement.

In M/S Linde Heavy Truck Division Ltd V. Container
Corporation Of India Ltd &
Anr.(2012)6the
Arbitration Clause of the agreement contained "...that in
case either partymay requirethat the dispute be referred for resolution by
arbitration...". The Apex Court relying on the well
settled principles laid down in the above referred cases, held that
if the agreement between the parties provides that in the event of
any dispute, they may refer the same to
arbitration, such clause would not constitute a binding arbitration
agreement. The Hon'ble Supreme Court held that the above clause
envisages a fresh consent for arbitration, in case the option for
arbitration is sought to be exercised by one of the parties to the
disputes. Accordingly it was held that the above clause containing
the word 'may' does not constitute a
binding arbitration agreement.

Again in another case, Wellington Associates Ltd. v.
Kirit
Mehta7clause 4
and 5 of the Arbitration agreement respectively, prescribed
that:

Clause 4:It is hereby agreed
that, if any dispute arises in connection with these presents, only
courts in Bombay would have jurisdiction to try and determine the
suit and the parties hereto submit themselves to the exclusive
jurisdiction of the courts in Bombay

Clause 5: It was also agreed by
and between the parties that any dispute or differences arising in
connection with these presentsmay
bereferred to arbitration in pursuance of
the Arbitration Act, 1947.

Holding that clause 5, extracted above, does not constitute a
firm or mandatory arbitration clause, the Hon'ble Supreme Court
of India, inter alia, held as under:-

"Clause 5 follows with the words 'it is also
agreed' that the dispute 'may' be referred to
arbitration implying that parties need not necessarily go to the
Civil Court by way of suit but can also go before an arbitrator.
Thus, clause 5 is merely an enabling provision as contended by the
respondents. I may also state that in cases where there is a sole
arbitration clause couched in mandatory language, it is not
preceded by a clause like clause 4 which discloses a general
intention of the parties to go before a Civil Court by way of suit.
Thus, reading clause 4 and clause 5 together, the court is of the
view that it is not the intention of the parties that arbitration
is to be the sole remedy."

Again in the case of B.Gopal Das v. Kota Straw
Board8 the
dispute resolution clause in the agreement prescribed:

"That in case of any dispute arising between us, the
mattermay bereferred to
arbitrator mutually agreed upon and acceptable to you and
us."

"In the event of any dispute arising out of this
contract the samecan besettledby Arbitration held by a
Chamber of Commerce at Madras. Their decision shall be binding to
the Buyers and the Sellers."

Holding that the arbitration clause, extracted above, was not a
valid Arbitration agreement, the Calcutta High Court, inter alia,
held that:-

"The word 'can' by the most
liberal interpretation only indicate a possibility. It only means
this that after the dispute has occurred, the parties may go to
Arbitration as an alternative method of settling the dispute
instead of going to the Courts. But that means that after the
dispute has arisen, the parties will have to come to a further
agreement that they shall go to Arbitration.

In another case titled Powertech World Wide Limited
v. Delvin International General Trading
LLC10, The
Hon'ble Supreme Court reiterated the law on subsistence of an
arbitration agreement, but also in addition, looked into particular
facts and circumstances of the case, and thereby specified an
additional factor to establish the existence of an Arbitration
agreement. The Dispute resolution clause provided that:

"Any disputes arising out of this Purchase Contract
shall be settled amicably between both the parties or through an
Arbitrator in India/UAE"

The Court held that there exists consensus ad idem between
the disputed parties to amicably settle their disputes or settle
through arbitration in India or UAE. Also, notwithstanding the
judgment in Jagdish Chander, the correspondence letters
between parties signifies that the petitioner invocated the
arbitration and the respondent did not refute the existence of said
clause invoked had also referred to the appointment of
arbitrator.

Thus, along with the requirements of the factors required to
determine the existence of an arbitration agreement, the Court in
this case also enumerated an additional factor to determine
existence of an arbitration agreement – i.e. the related
correspondences/documents which would point to the intention of
parties.

In the case of M/S .Castrol India Ltd. v. M/S. Apex
Tooling
Solutions11, the Hon'ble High Court of Madras held that
though the arbitration clause used the words 'shall
have the right', the
court held that the said wordings are only
optional in nature, either to go for competent civil Court
or to refer the matter to the arbitration, and further observed
that there is no definite intention of the parties to go for
arbitration in the case of any dispute or differences arises
between the parties. It was held that unless there is a definite
intention in the clause found in the agreement to refer the matter
only to arbitration, it cannot be said that there is a valid clause
of arbitration in the agreement.

"Arbitration-Dispute if any arising out of this
Agreement shall be subject to the exclusive jurisdiction of the
courts in city of Delhi."

The Hon'ble High Court of Delhi held that the above clause
merely uses 'arbitration' in the heading of the clause.
However, the main body of the said clause completely
contra-indicates the existence of any arbitration agreement since
it provides that disputes, if any, arising out of the agreement
'shall be subject to the exclusive
jurisdiction of the courts in city of Delhi'.
It was held by the Court that in the present case, the main body of
the clause does not even contemplate that the parties may agree to
arbitration in future. The Court also compared the present case
with the Linde Heavy Truck and Wellington case (referred above) on
the use of the expression, 'may be referred to
arbitration' as opposed to the expression,
'shall be referred to arbitration', and held that
the intention of the parties was not to refer their disputes for
arbitration. The submission of the petitioner that the word,
'may' used in clause aforesaid has to be
construed as 'shall', was rejected by the Court by
observing that the parties had used "shall" and
"may" at different places in the dispute resolution
clause. It was held that the parties used the word, 'may'
not without any reason. It was held that was merely an enabling
provision.

Therefore, unlike most US and UK courts addressing the question
hold that language providing that a party "may" submit a
dispute to arbitration requires mandatory arbitration, and not just
permissive, the courts held that the arbitration clause mandated
arbitration because if it did not, it "would render the clause
meaningless for all practical purposes" since parties
"could always voluntarily submit to arbitration. The decisions
are in concert with several state court decisions holding that
arbitration was mandatory once demanded by either party even though
the arbitration clause used the word "may" instead of
"shall"13, and therefore arbitration clauses
have to be given the broadest possible interpretation in order to
promote the resolution of controversies outside of the courts.

In view of the above discussion, it is clear that presently the
Indian courts are of the conclusive view that an arbitration
agreement is to follow the well settled principles whereby the
specific and direct expression of intent of the parties to refer to
arbitration proceedings are clear and precise from the language and
terms of the clause in the agreement. The words used disclosing a
determination and obligation to go for such arbitration
proceedings, such an agreement would then make it a valid and
binding agreement. Whereas any agreement or clause in an agreement
requiring or contemplating a further consent or consensus before a
reference to arbitration is not an arbitration agreement, but an
agreement to enter into an arbitration agreement in future, such
agreements would not be a valid agreement.

The content of this article is intended to provide a general
guide to the subject matter. Specialist professional advice should
be sought about your specific circumstances. The views expressed in
this article are solely of the authors of this article.

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